Every time their government puts a new restriction on home buying, Chinese investors put more money in new apartments and homes. Some are certain that the government will prop up housing prices forever, some are scared that if they don't buy now, they may not get a chance later. Investors in China are trapped in a TINA market, as in "There Is No Alternative," to investing in homes. As Pei Zhiyong, a housing investor told the Wall Street Journal, "No other investment is as profitable as property. Stocks are too risky.” Lingling Wei and Dominique Fong report the excesses in the market: With … [Read more...]
Sentiment Change Could Flip Yield-Reaching Market on its Head
Low long-term bond yields in the face of a Fed that is hiking short-term rates has helped sustain one of the greatest yield reaching episodes on record. As the WSJ explains, a reversal in sentiment is all it would take to drive yields back to more normalized levels, likely leading to an unwind in the trade. Not a comfortable foundation to build one's retirement portfolio upon. On a related note, stay tuned for a post explaining why investors assuming today's inflated stock market valuations are justified by low long-term bond yields have it wrong. It has been “TINA” for the last seven years. … [Read more...]
Famous Last Words: “This Time It’s Different.”
Howard Gold, a columnist at MarketWatch, explains that Millennials are making the same investing mistakes their parents made. But rather than making those mistakes on a clunky old desktop, they're making them on their smartphones. Millennials' favorite stocks are those without dividends, and instead of trading for value, they're trading the stocks of companies they're familiar with. According to TD Ameritrade, the five stocks most owned by its millennial customers are—wait for it—Apple Inc. AAPL, +0.26% Facebook Inc. FB, +2.39% Amazon.com Inc. AMZN, +1.35% Tesla Inc. TSLA, +1.03% and … [Read more...]
Independent Bookstores are Booming
MarketWatch reports here on a renaissance for independent bookstores. Is this the start of peak Amazon? Print is dead? Long live print! Amazon may have conquered the book-selling market long before it entered the grocery market, but word nerds are finding their way back to indie bookstores, despite massive discounts on Amazon Prime Day July 11. Even as the internet superstore sinks its claws into America’s literary capital with its first brick and mortar Big Apple bookstore this spring, bookworms will tell you that paper books and the community around them are alive and kicking. In … [Read more...]
One More Reason You Should Avoid Index-based Bond ETFs
The index-based ETF investment craze continues to lead to distortion in financial markets. Many investors are buying funds without fully understanding the risks. The risk of large-cap equity indices has increased over recent years as a handful of the market’s most expensive shares have become such a large portion of the index. The risk of bond index ETFs has also increased. The chart below shows that the duration of the Bloomberg Barclay’s U.S. Aggregate Index has increased 20% over the last five years and 35% since 2009. Duration is a measure of interest rate risk. The higher the … [Read more...]
Does the End of the Easy Money Era Threaten Stocks?
Global equity markets are selling off this morning and bond yields are rising as news that the European Central Bank considered removing a pledge to increase their bond-buying program if needed. Money printing by the world’s largest central banks has gone on for so long that it is easy to forget the massive amount of support they are providing to global financial markets. A quicker than anticipated end to the ECB’s bond buying program could remove some of that support. Bloomberg has the story. European Central Bank policy makers considered removing a pledge to increase their bond-buying … [Read more...]
Volvo puts Tesla in its Cross Hairs
Tesla shares are on fire, up 65% YTD. Tesla is a story stock. Even more so than the FANGs. Tesla’s investors seem to be convinced that the world is moving toward electrification of the global auto fleet (probably true) and Tesla is going to lead the way and in the process become the most profitable car business the world has ever seen. The latter assumption seems suspect. The auto business is fiercely competitive. The GM’s, Mercedes, BMWs, and as outlined here, Volvos of the world, aren’t going to sit idle. Volvo Cars announced that every model from 2019 onwards would have an electric … [Read more...]
Are your Municipal Bonds at Risk of Default?
Illinois, one of the biggest muni bond issuers in the country is at risk of having its general obligation bonds downgraded to junk status. If the state is downgraded it would become the first in the nation to be rated junk. The FT reports Despite marathon talks, Democratic and Republican lawmakers were unable to agree on a budget by the end of the fiscal year that ended on Friday. Rating agencies had said that missing the deadline was likely to trigger a downgrade, and while talks continued over the weekend, it was looking increasingly likely that no deal will be agreed. S&P and … [Read more...]
What Low-Income Family Spending Habits Can Teach You About Investing
Marketwatch reports that low-income families spend about 40% of their income on luxuries. That compares to the 65% that high-income families spend on luxury goods. Why are low-income families spending so much of their money on luxury goods? Marketwatch reports that nearly half of Americans attribute their profligate spending to emotion. Emotion and money don’t mix, particularly when it comes to investing. Some of the biggest investment blunders we’ve watched investors make are when fear or greed start to drive the decision making process. Successful investing requires a cold and … [Read more...]
Bank Dividends Soar
After U.S. banks passed the Fed’s latest stress tests with flying colors, bank dividends are soaring. Some of our highly favored banks just increased their dividends as much as 35% in addition to announcing increased buybacks. The FT reports on bank dividends. Now, rather than accumulating capital to build buffers against losses, the likes of Morgan Stanley and Bank of America can start handing it back. Across the 34 banks which took this year’s exam, payouts to shareholders will come close to 100 per cent of projected profits over the next year, according to senior Fed officials, up from … [Read more...]
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